Typically in Canada, agricultural commodities such as grains, beans, peas, and the like, once harvested, are farm stored in bins on the farmers land, and transported to permanent commercial bulk handling facilities when storage space and suitably attractive commercial purchase contracts are available. The commodity is transferred into the commercial facility and combined with other similar commodity in large bulk storage bins.
The quality of any given batch of such commodities will vary. In the commodity industry, the quality of any particular batch of a commodity is indicated by assigning the batch a grade, for example #1, #2, #3 and so on, with lower numbers indicating higher quality. Such grading will be based on different factors for different commodities, and typically considers grading factors such as color, staining, disease, plumpness of kernels, weight per unit of volume (bushel weight), and the like.
Similarly cracked seeds, weed seeds, and foreign material are present in any given batch of a commodity in varying amounts, and is typically referred to as dockage. Dockage includes anything that must be cleaned out of the batch in order to bring it up to a standard that is fit for a particular market. Generally a small percentage of dockage is allowed in a commodity, but anything in excess of that must be cleaned out. This dockage that is cleaned out of a commodity has a much reduced value compared to the commodity from which it derives.
Conventionally, grade and dockage are determined by taking representative samples of the commodity batch, reducing such sample to a lab sized volume (generally less than 1 kg) and manually separating and measuring and appraising the pertinent components and attributes. The whole batch is then presumed to be of the determined grade and contain that percentage of dockage.
Where for example the gross weight of a commodity batch is 100 tons, and where the sample is graded as #2 dark northern wheat with 13.5% protein, and is determined to contain 3% dockage, the commercial facility will give the farmer a receipt showing a net delivery of 97% of 100 tons, or 97 tons of #2 dark northern wheat with 13.5% protein. In some commercial facilities, and with some commodities, the farmer may also be compensated for the 3 tons of dockage, and in others the dockage is not further considered as part of the transaction.
The grade and dockage of the sample may be determined by facility personnel, or by an independent third party either at the facility or at a remote location where the sample is sent. The farmer receives payment for each batch of commodity on the basis of the grade and dockage of the sample.
Once the batch of commodity is delivered to the commercial facility, the batch has entered the commercial chain and is no longer identified with the farmer or segregated by origin. The farmer has only the receipt showing the grade and net quantity delivered. At that point the farmer can sell the grain represented by the receipt, either immediately or at a later date. If he delays sale, the commercial facility may levy a storage charge which will be deducted from the future sale.
This loss of identity is becoming problematic. The trend in food supply chains is toward providing traceability of food products so that where a problem is discovered by an end-user, the source of the food product can be traced right back to the farm it was grown on. Traceability and identity preservation are not provided by conventional commercial facilities where commodities delivered thereto are mixed together. Providing identity preservation and traceability can add value to the commodity for certain end-users.
Typically once in the commercial facility, the grain will be stored for some time until a sufficient quantity of a particular commodity, or grade of a commodity, is assembled in the facility to warrant shipment. At that time the commodity will be transferred from the commercial facility to a transport vehicle for movement farther down the commercial chain, either directly to an end user, or often to a coastal commercial facility where the commodity will eventually be transferred to a ship for carriage overseas.
At some point after entering the commercial chain by delivery from the farm to a commercial facility, the dockage will be removed from the raw commodity. Historically in many areas, the initial delivery of raw grain was commonly made at a small local commercial facility or primary elevator that did not have the equipment required to remove dockage. The raw grain was shipped, typically by rail, to larger facilities or terminals for dockage removal. These terminals were often located on a coast where the commodity was to be exported overseas. More recently the trend has been to close and tear down these small primary elevators in favor of large commercial elevators or inland terminals.
These inland terminals enjoy economies of scale with respect to personnel, facility maintenance, and the like, and more particularly with respect to rail transport. Considerable savings in freight costs are available when a railway can deliver rail cars in lots of fifty or a hundred to a single location, and then take away the loaded cars within a short time, perhaps 24 hours or less. For many farmers however, the distance required to transport a commodity to these commercial terminals is considerably increased compared to the smaller local facilities, and the total transportation costs from farm to market continue to increase.
Many of these inland terminals include processing and cleaning equipment capable of removing dockage. As well as removing dockage the equipment may also be used for product sizing and product density separation. Product sizing can be required to meet contractual standards. For example a pea contract may specify a minimum seed size like 15/64 of an inch, or a grade improvement could result from removing small slender seeds that have been affected by drought or frost. Separation by density can remove more subtle variances caused by frost or heat stress, and upgrade the commodity.
The processing and cleaning equipment required for high capacity removal of dockage, such as is required in an inland terminal, is quite large and cumbersome, and relatively expensive. Such equipment typically includes rotating indents, and vibrating sieves and must be anchored to a concrete foundation in order to provide satisfactory operation, and to prevent the vibrations from one machine from affecting the operation of another. The equipment must also be maintained in a level orientation in order to allow proper flow of a commodity through the equipment and satisfactory operation. Because of these operational requirements, the equipment is not conventionally made portable.
Commodities other than traditional grains, such as peas, beans, lentils, and the like, have become increasingly popular in many areas in recent times, and often an entirely separate chain of commercial facilities has developed to receive these special crop commodities from the farmer and move them to various markets, often overseas. The general concept and process has, however, stayed basically the same.
When a farmer decides he would like to deliver some commodity, he will generally contact one or more commercial facilities to determine their pricing and delivery options. As well, he will most probably take a sample to one or more of these commercial facilities to see how each facility grades the sample and determines the dockage. The commercial facility itself is paid on the actual grade and net commodity delivered to its customer, and so must take care to ensure that overall, they are buying within a range that will result in a profit when they in turn sell the commodity.
Generally a farmer with a sample will be advised of a grade and dockage for the sample, however it is not possible to guarantee any such parameters for a truckload or bin full of the commodity based on the sample, since often the offered sample or sample taken on delivery is not accurately representative of the delivered commodity. The relationship between the sample and the commodity batch from which it is taken can be viewed with suspicion by the farmer, and can be a contentious issue in the conventional system since in the majority of transactions, all payments to the farmer are based on the sample.
In the conventional system for moving agricultural commodities from farm to market, considerable time elapses between delivery of the commodity from the farm to a commercial facility, and eventual use by a consumer. Some progress has been made to implement “just in time” delivery from the farm to commercial facilities. Commercial facilities often attempt to determine what commodities are available in their trading area, and then schedule deliveries from farmers to correspond to shipment schedules, however the difficulties inherent in accurate scheduling and execution of the schedule result in large volumes of the commodity being stored in the facility for considerable length of time and involving large inventory costs and storage risks.
Typically a farmer will need to be paid for the delivered commodity when delivered, or at least within a few days after delivery. In addition to the cost of building and maintaining the commercial facilities, a large component of the cost of the conventional commodity movement system results from the commercial operator owning the commodity from the time the farmer delivers it until the time the commercial operator receives payment, a period that is often measured in weeks.
Financing is also required to cover the period between paying to the farmer and receipt of payment from the purchaser. This is particularly significant for smaller operators of commercial facilities that handle special crops like peas, beans, lentils, and the like. Since the value of a commodity can vary greatly depending on grade and dockage, financial institutions are commonly very conservative lenders with respect to both terms and collateral when financing bulk raw unshipped commodities.